VC-Backed IPOs Invade Market

Just when Google Inc. will go public is anyone’s guess.

The Mountain View, Calif., search engine company is widely expected to file soon and debut perhaps a $4 billion IPO in the first half of 2004. A handful of private shareholders and stubborn dot-com proselytizers have a reasonable interest in Google’s IPO, but the rest of the VC-backed IPO market is moving along as if it were still content with Webcrawler and Infoseek.

The fourth quarter of 2003 witnessed the busiest VC-backed IPO market in three years, and helped VC-backed companies raise more IPO capital than in any quarter since Q2 2002.

Seventeen VC-backed companies raised $1.04 billion by pricing on U.S. stock exchanges during Q4 2003, according to data released last week by Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association (NVCA). This is the same number of VC-backed companies that had priced in the past five quarters combined, and more money than had been raised over the first nine months of 2003.

Leading the Q4 cavalcade was Tessera Technologies Inc. (Nasdaq: TSRA), a San Jose, Calif.-based semiconductor packaging company that priced 7.5 million shares at $13 per share on Nov. 12. The total IPO take was $97.5 million, with the company netting $39 million and selling shareholders receiving $58.5 million. Company investors included Apax Partners (22.82% pre-IPO stake, 18.18% post-IPO stake), Concord Partners (11.17% pre, 10.29% post) and Landmark Partners (6.13% pre, 5.65% post).

As of market close last Wednesday, Tessera’s stock price was up more than 44% from its offering price.

Another big winner was the life sciences sector, which contributed seven offerings to the Q4 2003 VC-backed pot. The largest deal came from Boulder, Colo.-based Pharmion Corp. (Nasdaq: PHRM), which raised $84 million by pricing 6 million shares at $14 per share on Nov. 5.

The company had previously raised nearly $130 million in total venture funding, including a $40 million infusion in late 2002 at a post-money valuation of approximately $163 million. Pharmion shareholders at the time of the IPO – none of which sold stock as part of the IPO – included New Enterprise Associates, Nomura International, ProQuest Investments, Versant Ventures, Domain Associates, Bay City Capital, General Electric Pension Trust, Celgene Corp. and Aberdare Ventures.

At market close last Wednesday, Pharmion stock was up modestly at $15.39 per share.

Other VC-backed life sciences companies to go public in Q4 2003 included Acusphere Inc., Advancis Pharmaceutical Corp., CancerVax Corp., Genitope Inc., Myogen Inc. and NitroMed Inc. The downside to all this, however, was that only two of the quarter’s life sciences entries have experienced aftermarket success.

The first is Pharmion at 9.92% above offering price, and Myogen, which stood last week at 15.92% above offering price. Losing the most ground in Q4 were Acusphere, Genitope and NitroMed, all of which were trading at least 30% below their offering prices as of market close last Wednesday.

The quarter’s greatest aftermarket gainer came from the oft-forgotten (except by Google fans) Internet space, where online travel company Inc. (Nasdaq: CTRP) has watched its stock more than double since going public Dec. 8.

Shanghai, China-based Ctrip priced 4.2 million American Depository Shares at $18 per share, and saw its stock price rocket about 110% to $37.80 by market close last Wednesday.

Venture capital shareholders in include the Carlyle Group (25.72% pre-IPO ownership, 18.3% post-IPO ownership), Tiger Technology Private Investment Partners (8.03% pre, 6.7% post), IDG Technology Venture Management (7.33% pre, 5.21% post), and S.I. Technology Venture Capital (5.79% pre, 4.12% post).

All VC-backed IPOs in the fourth quarter priced on the Nasdaq. It was a busy three months for IPO activity, the likes of which haven’t been seen for three years. In total, 46 companies went public in Q4, of which 17 were venture-backed. The overall volume of IPOs was the highest level since the third quarter of 2000, when 113 companies launched IPOs on the U.S. public markets.

Buyout Bonanza

The buyout-backed venture market also rebounded during the fourth quarter, with 14 buyout-backed companies raising $2.68 billion. Even more impressively, just two of those companies were trading below offering price as of market close last Wednesday, and that included Aspen Insurance Holdings Ltd. (NYSE: AHL), which was down just 10 cents per share.

The quarter’s largest buyout-backed IPO came from SIRVA Inc. (NYSE: SIR), a Westmont, Ill.-based global relocation services company. It priced over 21 million shares on Nov. 24 at a price of $18.50 per share. Of the $389.74 million total IPO take, $139.47 million went to selling shareholders like buyout firm Clayton, Dubilier & Rice, which launched SIRVA in 1998 as an acquisition platform that eventually acquired both North American Van Lines and Allied Van Lines.

As of market close last Wednesday, SIRVA was trading up 10.54% at $20.45 per share.

The buyout-backed IPO with the most aftermarket swagger was Universal Technical Institute Inc. (NYSE: UTI), which was up nearly 55% over its $20.50 offering price. The Phoenix-based provider of post-secondary technical education had received investments from buyout shops like Charlesbank Capital Partners and JZ Equity Partners.

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